ISLAMIC FINANCE AND THE HALAL INDUSTRY: NATURAL ECONOMIC PARTNERS
Islamic Banker speaks to DHB’s Group Chief Executive Officer Mohamed Hazli on how the halal and Islamic finance industries can complement one another, and also on the overall growth and potential of the halal economy.
ISLAMIC BANKER (IB): The halal industry is more than three times the Islamic Finance industry. What are theways do you think both can complement each other to leverage their strengths for future growth?
MOHAMED HAZLI (MH): The global halal economy and the Islamic finance industry are natural economic partners
According to a report by Malaysia’s Islamic Finance Centre the global halal economy was valued at approximately US$3.2 trillion in 2012 and this sector is forecasted to double to US$6.4 trillion by the year 2018. Driving this tremendous growth is a combination of demand and supply factors that are spearheading the market expansion of the halal products and services. The halal industry operates across a number of sectors including food, clothing, finance and tourism. The industry’s footprint extends beyond the Organisation of Islamic Cooperation (OIC) countries and has a sizeable presence in other jurisdictions such as the United Kingdom, Brazil, the United States of America and Thailand. The global halal products and services ecosystem encompasses various inter-related industries from food, travel, lifestyle to finance. There are huge opportunities for both to leverage on each other such as the provisioning of funding options for trade financing, working capital, asset financing and raising capital to fund expenditure. I believe the Islamic remarkable growth of the global halal business.
IB: Malaysia has a robust halal certification process and regulation which other Muslim countries adopt, including the Middle East countries. Complementing this, Malaysia also has a well-developed Islamic market. How do you think this will attract new investors and players to the local, regional and international markets?
MH: Malaysia’s Halal Certificate is one of the most sought after certification by halal producers worldwide. Currently there are over 120 active Halal certification bodies internationally. However, the Department of Islamic Development Malaysia (JAKIM) has a reputation as the world’s market leader in halal certification. In terms of
economies of scale, large companies like Kellogg’s, Hershey’s and Nestle have their manufacturing plants here in Malaysia to take advantage of the halal certification which would enable their products to be sold in existing markets and, most importantly, to enter the Muslim markets whilst simultaneously being funded by the more flexible Islamic
finance. Malaysia is also recognised as a well-developed Islamic finance market. It has grown significantly over the
last 30 years. Malaysia’s Islamic finance marketplace is today characterised by a robust regulatory, supervisory, Shari’a and legal framework, a deep primary and active secondary sukuk market, an efficient price discovery mechanism, a diverse talent base with global capabilities and an efficient system for multi-currency clearing and settlement. From the halal perspective, global industry players and market participants in the halal industry can take advantage of the innovation, expertise and deal flows that emanate from Malaysia’s Islamic finance marketplace for business deals from anywhere in the world.
IB: How does the Halal industry engage both Muslim and non-Muslim entrepreneurs to utilise Islamic finance in developing the halal industry?
MH: As a way forward, integration between the world halal industry and the global Islamic finance system has a huge developmental potential for the growth and expansion of Islamic economics in the world markets. The combined two sectors – worth several US$ trillions – are natural complements under the common guiding principles of Shari’a and have the prospects to collectively emerge as one of the most important sectors of the world markets. The halal industries are fast gaining ground on the back of rising demand from burgeoning Muslim communities, economic standing of OIC countries and their active trade relations internally and with the rest of the world. Alongside, Islamic finance is progressing robustly, making a mark in numerous traditionally Muslim and non-Muslim countries alike. Islamic finance and its component sectors offer a comprehensive range of products and services that are capable of supporting the financing needs of halal industry companies, regardless of size and maturity. The stakeholders from the global Islamic finance and the halal industry need to leverage the synergies between the two sectors and enable efficient outcomes through collaborative efforts in the growth and promotion of their businesses. The greater benefit from such cooperation stems from the achieving of an end-to end Shari’a compliance in the value chain of the global halal economy.
IB: The Halal economy is emerging as a new economic paradigm that could have a major global impact. What kind of growth do you foresee in the next few years?
MH: The global halal segment is rapidly entrenching further in the world economy driven by a number of demand and supply factors. From the demand side, a fast expanding Muslim population combined with growing wealth in the Muslim-dominated economies are the main growth drivers spearheading the increased demand for Shari’a-compliant products and services. The growth is huge. As per latest statistics from Pew Research, Muslims are forecasted to comprise of 26.4% of the world’s total projected population of 8.3 billion by 2030 (2010F: 23.4%). In terms of global expenditure on Halal trade it is expected to grow from US$1.7 trillion in 2012 to US$2.5 trillion in 2018 at a CAGR of 7.8%. Global Halal e-commerce, which is a fairly untapped market, is expected to grow from US$88 billion in 2012 to US$232 billion in 2020 and provides vast opportunity for this largest emerging market. Hence, the halal industry will have a major global impact to the world economy.
IB: What are the key challenges that need to be overcome for the industry to continue growing?
MH: Perception – most people think that halal is only about the way Muslims slaughter animals. Therefore, there is a need to educate that halal is all about hygiene, food safety and quality standards. Halal/Shari’a compliant standards – various standards and interpretations that need continuous engagement among the world’s certification bodies to discuss and come up with the consensus. Enforcement – tighten enforcement, as unscrupulous traders would primarily focus solely on making money and nothing else.
IB: Is Islamophobia a threat to the global Halal industry? What are your thoughts on this?
MH: The global Halal economy comprises businesses whose operations comply with the principles of Shari’a. In spite of the word halal being associated with the religion of Islam, a halal economy ultimately benefits the entire
global community. Most of the founding principles of a Shari’a-compliant economy are naturally aligned with the
universally recognised values of ethics and sustainability. As a result, Islamic values have a universal appeal making
many halal products and services equally attractive to non-Muslim consumers, particularly in the light of current global sentiments where the demand for ethical and socially conscious product offerings are on the rise. Furthermore, demand for halal products and services are increasing rapidly due to the growing Muslim populations and economic affluence. Growing economic affluence of the Muslim population is expected to increase from $2.9 trillion in 2010 to $5.3 trillion in 2020 at a CAGR of 6.2%. Therefore, no matter what the situation is, the global Halal industry indicates an upward trend.
IB: DHB provides end-to-end solutions for SMEs to penetrate the global market. What are the prime challenges faced by SME’s (both Islamic and non- Islamic) in penetrating the Muslim market and what solutions do you provide to help them?
MH: There are three key challenges here: 1) Difficulties in finding halal ingredients and halal product suppliers which delays getting the Halal certification for their products . 11) The need for cost effective platforms for product listing and e-commerce with international presence, 111)Limited market access due to the high cost of international
marketing. DHB provides the necessary platforms, www.halalverified. com and www.daganghalal.com for SMEs to quickly identify and select the halal ingredients, halal products and suppliers which facilitate and expedite the process of halal certification. Furthermore, with our quarterly production of halal magazine, HMAG, SMEs are able to reach out to international markets at a fraction of the cost. We also provide marketing services for SMEs to showcase their products at international trade fairs.
IB: What role does DHB play in furthering Islamic financing proposition to the halal industry players, including, SME’s and big conglomerates?
MH: DagangHalal is a single platform for Muslims worldwide to source, trade and promote halal products and services. Its e-commerce platform, DagangHalal.com is one of the world’s largest e-Marketplace for global B2B trading of Halal products and services. We work closely with local and international Halal certification bodies and authorities to promote Halal trade. It integrates manufacturers, importers, exporters, distributors and service providers and helps the entrepreneurs to gain maximum branding exposure and business opportunities especially in the Halal world. The Company has now become the world’s repository with its HVE solution, an interactive software and mobile application that identifies authentic halal certified products and halal food premises across the globe. The company’s HVE database is expected to have 60 million users with 70 global halal certification bodies across 50 countries with more than 300,000 halal suppliers in the next five years.